Better Place = The Future of Cars?

(11/23/2008) - Like so many of the new clean/renewable/green energy companies, Better Place promises us that they can change the world.   On their website, Better Place’s asks us to “Imagine living free from oil.”  “Picture,” they say, “zero-emission electric cars running on a clean energy grid.  Governments, auto makers, energy companies and Better Place work hand-in-hand to make this happen.”  And they'll end end war, famine, and religious strife before dinner.

All joking aside, Better Place has set a high bar for itself.  Car companies around the world have been trying for decades to produce a successful electric car, and they all get hung up with the same problem: the battery.  Car batteries are large, heavy, and don’t last all that long.  Unlike gasoline or diesel-powered cars, which only take a few minutes to fill up, batteries can take hours to charge.  This makes it very difficult to take electric cars on longer trips.  Electric car batteries are also expensive to replace.

So Better Place has invented a great new battery?  Nope.  The thing that makes me excited about Better Place is that if they are successful, we won’t need a better battery.

Better Place was founded in October 2007 by software executive Shai Agassi.  How did a software executive get the idea to start a car company?  Well, he didn’t.  Not really.  Better Place isn’t a car company in the sense that they don’t make cars.  Agassi’s company is much closer to a cell phone or software company than it is to GM, Toyota, or Ford. 

Better Place was founded in October 2007 by software executive Shai Agassi.  How did a software executive get the idea to start a car company?  Well, he didn’t.  Not really.  Better Place isn’t a car company in the sense that they don’t make cars.  Agassi’s company is much closer to a cell phone or software company than it is to GM, Toyota, or Ford. 

Instead of making money when they sell you the car, Better Place profits when it sells customers the electricity to run the car (which they promise to procure from renewable sources) from their network of charging stations.  Nissan/Renault is currently designing the first Better Place-compatible car, and Agassi is reportedly in negotiations with other car makers as well.  The cars will be sold cheaply and will come with contracts for car miles (think minutes on cell phone plan).  You can have unlimited miles, or you can agree to buy a specific number of miles per month.  Drivers of electric cars without Better Place contracts will be allowed to purchase electricity from charge stations as guests.

Better Place's principle innovation has been to maintain ownership of the car battery.  “For the car companies, we made it simple," Agassi told Wired Magazine in August. "We separated the ownership of the car and the ownership of the battery. See, car companies don't know how to assess the life of the battery. So they go through these complicated programs of testing them for a long period of time. And we told the car company, you know what? Just like you don't sell a car with a card that says 'Here is oil for the life of the car,' you don't sell cars with the batteries for the life of the car, because the battery is crude oil."  This is also advantageous for the driver because they don’t have to worry about replacing a $10,000 battery.

Better Place also retains ownership of the car’s battery.  This is the main innovation in the company’s business model.  “For the car companies, we made it simple," Agassi told Wired Magazine in August. "We separated the ownership of the car and the ownership of the battery. See, car companies don't know how to assess the life of the battery. So they go through these complicated programs of testing them for a long period of time. And we told the car company, you know what? Just like you don't sell a car with a card that says 'Here is oil for the life of the car,' you don't sell cars with the batteries for the life of the car, because the battery is crude oil."  This is also advantageous for the driver because they don’t have to worry about replacing a $10,000 battery. 

Here is how the Better Place system is supposed to work:  According to their website, the electric sedan will have a range of about 100 miles on a fully charged lithium-ion battery, and a normal recharge takes about a minute per minute of driving.  So on the average day, you drive to work, a friends house, or the market.  At the end of the trip, you drive home and plug your car into your Better Place charging station.  The company is also planning to install charging stations in parking garages, on streets, and at retail centers.  If you need to go further than 100 miles but don’t want to stop for a couple hours, you can pull into a battery changing station.  These automated stations will change the battery in less than three minutes.  Since you don't own the battery, this one is as good as the next.

The whole system will be managed with a piece of software known as AutOS.  According to Wired, the AutOS system “serves as energy monitor, GPS unit, help center, and personal assistant, packed into an onboard PC that will also hold cellular and Wi-Fi chips.”  When a car is low on energy, AutOS will point the driver to the nearest charging or battery station.  Though the details are vague, it sounds like the AutOS system will also work with new “smart grid” technologies to charge the car during off-peak hours, possibly even pulling electricity out of car batteries when needed during peak energy somewhere else in the grid.    

Better Place is currently planning to launch their networks in three countries – Israel, Denmark, Australia – as well as in the San Francisco Bay Area in California (with battery exchange stations through out California).  The geography of the first three make them advantageous to Better Place's network.  Israel is a virtual island, surrounded on all sides by water and enemies, and the furthest you can drive in a straight shot is 250 miles.  Well connected to the countries surrounding it, Denmark is a relatively isolated peninsula.  And even though Australia is a very large island, most of the population live along the coast, mostly in the south-eastern part of the country.

Israel and Denmark should prove to be easier countries in which to gain a large market share.  Not only are they small, but both governments have arranged for Better Place (and other emissions-free vehicles) to have substantial tax advantages.  For the first four years in Israel, sales tax on electric cars will be 10%, compared to 72% for gasoline-powered cars.  Gas prices in both countries are among the highest in the world.  

Better Place’s plans for California, I think, are far more ambitious, and it will probably take them much longer to take hold.  Not only is the United States the third largest country on Earth, but it has no special sales tax for cars, it's inexpensive to get a license, and the federal gasoline tax is currently $0.184 a gallon, while the average state tacks on an additional $0.28.  If gas rises back up to $3 or $4 a gallon, it will be easier for Better Place to say that they offer a real financial advantage.  While its true that most driving is done close to home, I'm not sure how most people feel about their car being limited to a specific area.  

All told, California probably offers the best place for Better Place to gain a foothold in the United States.  Its warm (batteries don't perform as well in cold climates), has a government serious about climate change, and has lots of renewable enery projects in the works.  Should the company do well there, it shouldn't be very difficult to expand into the L.A., Seattle, Portland, and Vancouver markets. 

Better Place’s utopian vision will not come to fruition by their efforts alone.  Government, utilities, and electricity producers are all going to have to step it up for Better Place's business model to become sucessful.  Better Place promises to only sell electricity from renewable sources.  If there aren’t enough new sources of renewable energy added to the grid, this will be impossible.  Even if utilities are able to procure enough clean energy, the United States electrical grid is already being pushed to its breaking point.  It will need to be upgraded before we can rely upon it for our transportation energy. 

As long as Better Place sticks to its pledge to buy its electricity from renewable sources, its networks will create an enormous demand for clean sources of energy.  I consider myself a consumption-sider (think of it as the opposite of a supply-sider).  I believe that in the long-haul, it is the customer that drives the market.  This is one reason why America’s War on Drugs has been so ineffective.  Until the market for drugs shrinks, bombing and arresting the dealers isn’t going to stop anything. 

The same logic can be applied to the market for renewables.  Government mandates requiring utilities to buy renewable energy sources create an artificial market.  Unless the price of renewables is brought down to that of coal, there will always be doubts in many minds that the market for renewables is here to stay.  Should a new government dismantle mandates or whatever is being used to prop up the market, it will collapse.

Better Place changes this calculus.  If the company can successfully create a permanent market for electric vehicles that are cheaper to buy and operate than their gasoline powered peers, then they create a permanent market for electricity generated using renewable sources.  Also, the general trend in manufacturing is the more you make, the cheaper it becomes.  If Better Place can create a large market for renewables, it will likely make them competitive with coal faster.

Better Place imagines its system as a key part of the next-generation grid: “Because most electric vehicles will be charging during the evenings while at home, the batteries become distributed storage for clean electricity. In Israel, for example, excess power from the growing solar industry will be stored in the cars’ batteries.  Similarly, in Denmark, unstored energy from the country’s wind turbines will be utilized. Better Place can help each market identify and develop its own “virtual oil fields” of renewable energy.  Same with Australia which possesses wind farms throughout the country. So too does California.”

This is an incredibly audacious and important plan, though I remain skeptical because I haven’t seen enough details.  One of the problems foreseen in making wind and solar primary instead of supplementary sources of electricity is that they are intermittent and there is currently no effective way to storing excess energy for later use.  Basically, Better Place is proposing that utilities use their network to store and extract electricity on car batteries as needed.  If the typical electric battery holds 40kWh of electricity (a figure I guestimated from looking at other electric cars), and the Better Place network of a million cars in its network,  that’s forty MWh of electricity at the grid’s disposal.  Nothing to sneeze at, for sure.

All in all, Better Place is one of the most exciting new companies out there, green or not.  Now we just have to hope they don't hit too many snags during the role out.  The Finite World will keep its eyes and ears open to any new developments.